• 4 minutes Some Good News on Climate Change Maybe
  • 7 minutes Cuba Charges U.S. Moving Special Forces, Preparing Venezuelan Intervention
  • 12 minutes Washington Eyes Crackdown On OPEC
  • 15 minutes Solar and Wind Will Not "Save" the Climate
  • 4 hours Amazon’s Exit Could Scare Off Tech Companies From New York
  • 3 hours And for the final post in this series of 3: we’ll have a look at the Decline Rates in the Permian
  • 3 hours Most Wanted Man In Latin America For AP Agency: Maduro Reveals Secret Meetings With US Envoy
  • 10 hours Former United Nations Scientist says the UN is lying about Global Warming and Sea-Level changes
  • 6 hours Prospective Cause of Little Ice Age
  • 29 mins And the War on LNG is Now On
  • 21 hours L.A. Mayor Ditches Gas Plant Plans
  • 24 hours Qatar Petroleum, Exxon To Proceed With $10 bln Texas LNG Project
  • 20 hours Russia to Turkey: You Can't Have Syrian Safe Zone Without Assad's Consent
  • 17 hours Solar Array Required to Match Global Oil Consumption
  • 4 hours *Happy Dance* ... U.S. Shale Oil Slowdown
  • 19 hours Europe Adds Saudi Arabia to Dirty-Money Blacklist
Alt Text

Fifty Shades Of Shale Oil

A close examination of U.S.…

Alt Text

Oil Rises Despite Rising Oil, Product Inventories

Oil prices rose on Wednesday…

Kurt Cobb

Kurt Cobb

Kurt Cobb is a freelance writer and communications consultant who writes frequently about energy and environment. His work has also appeared in The Christian Science…

More Info

Trending Discussions

Why The World Needs Both Shale And Tar Sands

What the current oil price slump means for world oil supply is starting to emerge. "Layoffs," "cutbacks," "delays," and "cancellations" are words one sees in headlines concerning the oil industry every day. That can only mean one thing in the long run: less supply later on than would otherwise have been the case.

But perhaps the most important thing you need to understand about the coming oil production cutbacks is where they are going to come from, namely Canada and the United States.

Why is this important? For one very simple reason. Without growth in production from these two countries, world oil production (crude oil plus lease condensate which is the definition of oil) from the first quarter of 2005 through the third quarter of 2014 would have declined 513,000 barrels per day. That's right, declined. Including Canada and the United States, oil production rose just under 4 million barrels per day. Related: Bakken Data Continues To Confound

That means substantial cutbacks in the development of new oil production in Canada and the United States could lead to flat or falling worldwide oil production.

But, why will any oil production cutbacks come primarily from Canada and the United States? For another very simple reason. Post-2005 oil production growth in these countries came from high-cost deposits in Canada's tar sands and in America's tight oil plays. New production from these high-cost resources simply isn't profitable to develop in most locations at current prices.

Of course, there are various figures floating around about what price level will allow new production to proceed profitably in these deposits. Some of those figures closely match current oil prices. But, we should look at what the oil companies are doing, not what they are saying. And, what they are doing is cutting back and cutting back drastically. Recent U.S. rig counts dropped the most since 1991, and rigs are being withdrawn from the very areas that were responsible for the tight oil boom.

Earlier in January Canada's largest oil company and a major oil producer in the tar sands, Suncor Energy Inc., announced layoffs, a cut in its capital budget and delays in new projects. Others are doing the same.

If the low prices continue, even more of the previously anticipated new production from these deposits will be delayed while production continues to shrink in the rest of the world. The twin North American engines for growth in the world's oil supply would stall.

If the world economy goes into a long-term slowdown or recession, then oil demand will ease further. That would mean lower prices would stick around for a while. But eventually, when growth accelerates, the pressure on constrained supplies may become acute and prices could spike. Related: Alberta One Of Hardest Hit By Lower Oil Prices

By then, much of the workforce and machinery needed to increase production will be idle. But, probably more important, lenders and investors will be reluctant to risk money on tight oil and tar sands projects that only brought them grief the last time around. In all likelihood lack of capital will be the primary hurdle for Canadian and American operators when they attempt once again to ramp up production.

Even if oil prices recover soon to levels that would normally reassure lenders and investors, the growth in new production of U.S. tight oil and Canadian tar sands oil may only return to the hypercaffeinated rates of last summer several years from now after the memory of the recent financial carnage has faded.

Each day that oil prices stay low heightens the risk that the world will soon experience flat or falling worldwide oil production--something the oil supply optimists said simply couldn't happen with these new oil resources now available to us.

By Kurt Cobb

Source - http://resourceinsights.blogspot.mx/ 

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage

Trending Discussions


Leave a comment
  • Juvenal451 on February 06 2015 said:
    Canadian and American oil are strategically important: it is not necessary to kill and be killed to use it. There is no surcharge in blood.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News